4 ms·

The point of the article is they’re returning 2X on their recent funds. Their competitors who got in earlier are returning 25X.

seem_2211 7y ago
Which is great from an ego point of view, but also not that important necessarily - I think Matt Levine's point about hedge fund is largely true for VC - the point of being successful at running a hedge fund is keeping your job for a long time, rather than being exceptional.
- nostrademons 7y ago
  It's a problem from an LP's POV. There is no reason to invest in a VC fund that returns 2x when you can invest in a Vanguard index fund that returns 2x. You're supposed to get compensated with higher returns for the risk you take investing in VC; if you don't, the managers of that fund are failing at their jobs.
  - seem_2211 7y ago
    I agree in theory but not in reality. But it's the same situation where the the incentives of an LP and a VC are different (not really that different compared to a PE or Hedge Fund). Just like the incentives of a founder and a VC are aligned, until they aren't anymore. There's a reason LPs with squillions to invest carve off a tiny smidge to VCs, and it's not just returns - it's also downside protection. What's true for you and me for our personal finance is not necessarily true for the Harvard endowment.
    - gowld 7y ago
      I thought it's because VC only had a smidge of capacity to absorb capital. You can't fit everyone's $10-$100B funds into VC projects. Less then 1% of Facebook's value is VC funding.
      - mathattack 7y ago
        That was a different era. Look at the latest crop of unicorns.
    - nradov 7y ago
      Not so much downside protection or even absolute return, but rather uncorrelated returns.
  - mbesto 7y ago
    > There is no reason to invest in a VC fund that returns 2x when you can invest in a Vanguard index fund that returns 2x. That's not how it works. LPs create a portfolio mix across asset classes and each LP has generally different mixes based on their risk profile. If you're an LP and can't get into a Sequioa/Benchmark/etc fund but still want to diversify asset classes into VC then a "2x fund" might still be attractive to be able to diversify into. There's so much to unwind here, but long story - it's not that simple at all. I agree with the OP's assertion about Matt Levine's view. Example: https://twitter.com/ZacharyDeWitt/status/1112554272929910785 https://twitter.com/ZacharyDeWitt/status/1112554272929910785 Edit: Another point worth noting - hedge funds as an asset class are notoriously not outpacing index funds (and in many cases actually losing value), yet they still get funded: https://www.nytimes.com/2018/07/12/business/hedge-funds.html https://www.nytimes.com/2018/07/12/business/hedge-funds.html
- intuitionist 7y ago
  Do VC firms take 2-and-20 fees?
  - spamizbad 7y ago
    The used to. Not sure if that’s still true.
    - jon_dahl 7y ago
      Yep, and the top firms take more than 2-and-20.

seem_2211 7y ago

Which is great from an ego point of view, but also not that important necessarily - I think Matt Levine's point about hedge fund is largely true for VC - the point of being successful at running a hedge fund is keeping your job for a long time, rather than being exceptional.

nostrademons 7y ago
It's a problem from an LP's POV. There is no reason to invest in a VC fund that returns 2x when you can invest in a Vanguard index fund that returns 2x. You're supposed to get compensated with higher returns for the risk you take investing in VC; if you don't, the managers of that fund are failing at their jobs.
- seem_2211 7y ago
  I agree in theory but not in reality. But it's the same situation where the the incentives of an LP and a VC are different (not really that different compared to a PE or Hedge Fund). Just like the incentives of a founder and a VC are aligned, until they aren't anymore. There's a reason LPs with squillions to invest carve off a tiny smidge to VCs, and it's not just returns - it's also downside protection. What's true for you and me for our personal finance is not necessarily true for the Harvard endowment.
  - gowld 7y ago
    I thought it's because VC only had a smidge of capacity to absorb capital. You can't fit everyone's $10-$100B funds into VC projects. Less then 1% of Facebook's value is VC funding.
    - mathattack 7y ago
      That was a different era. Look at the latest crop of unicorns.
  - nradov 7y ago
    Not so much downside protection or even absolute return, but rather uncorrelated returns.
- mbesto 7y ago
  > There is no reason to invest in a VC fund that returns 2x when you can invest in a Vanguard index fund that returns 2x. That's not how it works. LPs create a portfolio mix across asset classes and each LP has generally different mixes based on their risk profile. If you're an LP and can't get into a Sequioa/Benchmark/etc fund but still want to diversify asset classes into VC then a "2x fund" might still be attractive to be able to diversify into. There's so much to unwind here, but long story - it's not that simple at all. I agree with the OP's assertion about Matt Levine's view. Example: https://twitter.com/ZacharyDeWitt/status/1112554272929910785 https://twitter.com/ZacharyDeWitt/status/1112554272929910785 Edit: Another point worth noting - hedge funds as an asset class are notoriously not outpacing index funds (and in many cases actually losing value), yet they still get funded: https://www.nytimes.com/2018/07/12/business/hedge-funds.html https://www.nytimes.com/2018/07/12/business/hedge-funds.html
intuitionist 7y ago
Do VC firms take 2-and-20 fees?
- spamizbad 7y ago
  The used to. Not sure if that’s still true.
  - jon_dahl 7y ago
    Yep, and the top firms take more than 2-and-20.